A combination of inflationary pressures, rising interest rates, high energy costs, and ongoing supply chain issues are significantly impacting the financial viability of many businesses, according to new research from Grant Thornton UK LLP.
The business and financial adviser’s latest Business Outlook Tracker found that over a quarter (28%) of mid-sized businesses in the East Midlands have restructured their operations to face these challenges, with a further 48% having plans to do so.
30% of business leaders in the region have already reviewed their headcount due to the impact of rising costs and inflationary pressures, with an additional 36% intending to do so.
The survey recorded that optimism levels from respondents on their business’s funding position dropped to 64%, which is a fall of -28 percentage points (pp) compared to August.
Many businesses in the region are having to secure additional finance to work through the escalating costs facing the market, with 36% already having secured further funding and 38% planning to do so.
The strain on funding has also led to a considerable drop in investment expectations across most areas monitored by the Tracker. The most significant drops compared to the last round in August 2022 were seen in skills development (-33pp), recruitment (-27pp) and employee wellbeing (-23pp). There was also a -19pp drop in the number of businesses planning to increase investment in plant, machinery and new buildings.
But investment looks to be being directed to areas that will have the most impact on reducing costs. Over three quarters (78%) of respondents have already invested, or are planning to invest, in productivity, efficiency and automation.
The number of businesses in the East Midlands that are optimistic about the outlook of the UK economy has also plummeted by –30pp, compared to August 2022.
James Brown, partner and practice leader at Grant Thornton UK LLP, said: “Businesses in the East Midlands are facing a long list of cost pressures, ranging from input cost price increases and high energy bills to rising interest rates and supply chain bottlenecks. All of this means that many businesses are being faced with cost increases from 5% to as much as 100% in some cases.
“The severity of the current market landscape is causing many firms to restructure their operations and review their headcount. While these pressures are going to be with us for some time, there are steps that businesses should be looking at if they’re not already. This includes reducing their debt level to counter interest rate rises, minimising energy usage, looking for efficiencies wherever possible, and considering alternative, cheaper suppliers.
“Right now, many East Midlands businesses will be looking ahead and reviewing their budgets for the next 6-12 months. These forward plans should account for factors that may spring up in 2023, such as the energy bill relief scheme ending, and rising interest costs. Thankfully, I know that this region is full of proactive, agile and dynamic businesses that will take on the challenges and emerge as more resilient, efficient organisations.”
